With projections that 6.4 billion devices will be connected by the end of 2016, a 30% increase from 2015, we are fast approaching the point where every device will be connected. “Our device is connected” or “Internet of Things enabled” will no longer count as a value proposition, it will be a base expectation. With this commoditization will come a need for businesses to find new avenues for value creation and capture, new business models. The current IoT business models are borrowing from the traditional retail product or even software-as-a-service subscription models. Even, according to ZPRYME Research, incumbents in the industries that will be most affected by device connectivity expect their business models to change.

Old models

The basic business models that currently exist in the IoT and IIoT space are

Retail sales (the Nest model): Equipment or device manufacturer expends its own money or raises financing to build products which are then sold to customers. The equipment or device manufacturer only captures value during that one transaction, the expectation is that there is a positive margin between revenue and expenses and that customers will buy more of the same product or more products. See my view on its own money or raises financing to build products which are then sold to customers. The equipment or device manufacturer only captures value during that one transaction, the expectation is that there is a positive margin between revenue and expenses and that customers will buy more of the same product or more products. See my view on that here.

Product lease/Subscription (GE model): Instead of selling the machine/device, the vendor leases the product to the customer. This has been around for ages, see your Comcast cable box for example.

It’s imperative that new businesses and startups should explore new models for value creation and capture. The new business models will stem from the increased interactions afforded by IoT and IIoT (Industrial IoT) devices. There are four elements to the interactions;

the device owner/user (a person)

the connected machine or device

flow of data between the person and connected device/machine

improvements to the performance of the person and connected device from the analysis of the data.

Interactions between the four elements provide more combinations of value provision and value capture.

Revenue from Industrial Insights: This is one of the models GE is providing through its Predix Virtual Power plant platform. For example; a startup serving power plants or utilities (say a predictive analytics startup) does not need to rent a turbine to be able to provide failure prediction to the utility. GE, by open sourcing its virtual plant (the cloud in the image above), generates additional revenue from the data. Additional revenue is captured through the use of insights, gleaned from data gathered from the machine/device, to make a service quality promise. This promise could be in the form of machine failure prevention or real-time machine performance improvements. The customer pays at an agreed upon frequency.

2. Capturing value from human factors, analysis and machine interaction: An example will best serve here. Some business models can lie at the intersection of the 4 elements above; A technician (Element 1 in the interaction) is augmented by Artificial Intelligence (Element 2) through a smart device like the Proxxi Safety Band (Element 3) during power line maintenance (Element 4). There is a business model where a customer pays for insights drawn from the interactions. In the case of Proxxi (image below) the device keeps the technician safe by alerting him/her and the control room when unsafe conditions are detected. Call it pay-per-warning.

3. Revenue from personal insights: Continuing the example above, with the four interacting elements, there is a business model that is an open and collaborative application platform where a platform (say Fitbit) makes some or all of their data open source and an external party can pull anonymized data and generate insights for the community. Apple is working on this model with Aetna, a partnership announced in a press release declaring

Aetna’s iOS-exclusive health apps (within the Apple Watch) will aim to simplify the healthcare process through a number of features, including: ..Care management and wellness, to help guide consumers through health events like a new diagnosis or prescription medication with user-driven support from nurses and people with similar conditions.

The aggregate data from the collective goes to improve the health conditions of one individual.

While the personal connected device/IoT market seems to be struggling right now, there is some value to be created and captured as the industry matures and better use cases are defined. On the other hand, the IIoT space is seeing a convergence in interest from the customers and clear use cases that provide value.

We no longer have to be confined to the traditional business models because we have increased interactions between more elements. We made the mistake of copying thenewspaper design when we transferred text to the web. Let’s avoid stifling the IoT and IIoT opportunities because of our own lack of creativity. We can

One of the ongoing issues with the transition to a new utility paradigm, for both consumers and providers, is the required change from a centralized to a distributed framework. Utilities are worried that consumers will abandon the power coming from a big power station far away in favor of the solar panel on their roofs, the tesla powerwall in their homes and the extra power from their neighbor. At the same time consumers are worried that the new forms of energy will cost them more than they currently pay and not everyone wants to ‘pay a premium to promote renewables’. Good news is that there is a transition opportunity that helps achieve the goals and desires of the consumer for safe (read as clean), reliable and stable power. They are called Nanogrids and Minigrids.

Nanogrids: are considered as discrete loads (the power drawn) that sometimes use direct current (DC) to reduce on energy losses that we normally see in long distance energy transmission. Navigant suggests a 5kW capacity for standalone systems and 100kW capacity if the system is tied to the current grid. Sidenote: think of kW as stock (energy in a tank) and kWh as flow (power used by your ac). The off-grid central Texas farm with its solar panels and its diesel generator on the back of the pickup truck is already operating as a nanogrid. Why is it less disruptive to the the utility? Because nanogrids, at current scale, do not take too much off the plate of the utility enabling them make the adjustment in a more transitional way. Why is it good for consumers? The ability to manage your own generation, demand and usage using renewable energy is where we are all going so why not get there earlier than others. The fascinating thing is that in African countries, including the one where I was born, either through lack of infrastructure or depreciated assets this is already the case. I wrote about my fathers generation serving as their own Youtility with each home running a nanogrid unto itself with a generator combined with solar energy for power, a borehole dug in the back of the compound for water and gas tanks swapped out at the gas station for cooking gas. A nanogrid…

MiniGrid: So what do you get when you combine nanogrids? Doesn’t take too much of a leap in imagination to see what a minigrid is; in lay terms it is a modular collection of nanogrids. It is often a collection of demand nodes (buildings) all pulling from one or a few distributed energy sources (a solar array and some storage). The difference from the current microgrid or centralized utility structure is in the size. There will be wires required to connect the homes and commercial buildings, which is not the case in a nanogrid, but not at the range that the current grid covers. This structure of grid lends itself to the pay-as-you-go model of electricity usage that is prevalent in the developing countries where this is already in play. This is a model that can be borrowed for low-income areas of most of our fast changing cities, a model that starts to cater to the customization of service that the future utility (customer) will demand.

Nanogrids will play a big role in the smart and connected homes we will all live in in the future and consequently the minigrid system will heavily impact the smart city future that is upon us. It is quite ironic that is a grid system that we in the US will be borrowing from developing countries where the lack of infrastructure is forcing the fast adoption of these systems. The utility, in it’s current state, will play some role in this future.

What is required is for the utility to take their vast reserves of cash and infrastructure and decide which part of the value chain - infrastructure, technology or people - their strengths lie.

No one can deny the value of a well constructed and well communicated narrative. There was a fab New York Times article about Larry Page this weekend that will continue to define how we feel about the business of Alphabet. In that article we get a sense for the strategic narrative that will define, in our minds, the next few years of business moves Alphabet makes. We rally round companies that tell compelling stories about themselves.

Strategic narratives, stories in a business context, are a way to create a shared understanding of the past, an understanding of the work in the present and projections for the future state. We have examples of where this works; Alphabet/Google's is organizing the world's information and employees know where they fit in that future, SpaceX is working on transport to other planets for all of us and that keeps employees clear about their future aspirations. We also have examples of when a narrative is absent; Yahoo lost its narrative and its mojo because its leaders did not redefine the narrative as the world changed around the company (and the ensuing employee exodus is inevitable).

For customers we can reverse engineer into what strategic narrative a company has when you see it take an action e.g Google becoming Alphabet (a holding company) or GE divesting its financial businesses (because it's strategic strength is industry not finance). And a lot of companies succeed even without having compelling narratives; these companies just don't become global behemoths.

But we have exceptions. The biggest company without a narrative right now is Apple. What is Apple's narrative?

See, a company narrative helps define where it's going or why it's doing what it's doing. I strongly believe consumers buy the 'why'. When you don't know the 'why' what are you buying? Do I have a problem with Apple? Apart from Tim Cook's ill-fitting suit for his meeting with the Italian prime minister (I joke, I joke)? There are too many Apple products in my home to suggest I have a problem with Apple. But 'why' would I buy another IPhone? Or why is my wife, and other friends, thinking it might be time to switch from Apple? These questions lie at the core of my worries about Apple.

To keep us buying IPhones the company will soon need to give us a more compelling reason why...Or else this story will turn ugly.